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‘Non-commercial’ uses and the Retail Leases Act

A recent decision of the Victorian Supreme Court of Appeal serves as an important reminder of the broad application of the Retail Leases Act 2003 (Vic) (RLA).

In IMCC Group (Australia) Pty Ltd v CB Cold Storage Pty Ltd [2017] VSCA, the Victorian Supreme Court of Appeal upheld an earlier decision of the Victorian Supreme Court, finding that premises used for a cold and cool storage business fell within the definition of ‘retail premises’ for the purposes of the RLA. The case turned on whether the premises were used for the ‘retail provision of services’.

Background

In 2012, CB Storage Pty Ltd (the Tenant) entered into a lease with IMCC Group (Australia) Pty Ltd (the Landlord) for a lease of a property in Laverton (the Lease). The permitted use defined in the Lease was ‘Cold and cool storage warehouse and transport facility’.

In accordance with the provisions of the Lease, the Tenant made payment of outgoings to the Landlord including land tax. Notably, under section 50 of the RLA, a provision of a retail lease is void to the extent that it makes the tenant liable to pay an amount for tax for which the landlord is liable under the Land Tax 2005 (Vic). The Tenant initiated proceedings seeking to recover the land tax and other payments it had paid to the Landlord that are prohibited under the RLA.

At first instance, the Victorian Civil and Administrative Tribunal (VCAT) found that the premises were not retail premises for the purposes of the RLA. VCAT came to this conclusion on the basis that the ultimate consumer of the goods or services must use the goods or services to satisfy their own personal needs. Whereas the Tenant’s customers used the goods and service for a business or other purpose.

On appeal, the Victorian Supreme Court overturned VCAT’s decision by adopting a broader approach, ruling that a consumer could be a person who uses the goods or services for business purposes or other purposes other than for personal needs, provided that the consumer in question was the “ultimate consumer” of the goods or services.

The Landlord appealed that decision to the Victorian Supreme Court of Appeal. The key issue in dispute was the application of the ‘ultimate consumer test’ in relation to the provision of retail services, specifically whether business-to-business transactions could satisfy this test for the purposes of the RLA.

The Victorian Supreme Court of Appeals decision

The Victorian Supreme Court of Appeal held that a detailed analysis of the goods or services being provided is required when considering whether premises are used for the retail provision of services and whether business-to-business transactions could satisfy the ‘ultimate consumer test’. In particular, the Court held that the following are all relevant considerations to be taken into account when determining the ‘ultimate consumer test’:

the nature of the service that is offered

whether it is a service that is generally available to anyone who is willing to pay a fee

whether the purchasers of the service are, as a matter of fact, the end consumer or are the services passed on by the purchaser in an unaltered state to some third person.

In applying the above considerations to the matter in dispute, the Court of Appeal supported the view that the Tenant was providing retail services from the cold storage facility given:

the Tenant’s customers (who were mainly companies involved in the food industry) paid a fee to use the Tenant’s services

any person (including members of the public) could purchase the Tenant’s services if the fee was paid

the Tenant’s customers were the ultimate consumers of the Tenant’s services as they did not pass on the services to any third party

the Tenant’s business operated during normal business hours.

Accordingly, the RLA applies to the Lease as the Tenant is providing retail services.

Key takeaways:

The key takeaways from this case include:

Victorian Courts favour a broad application when determining whether the provision of services from leased premises falls within the definition of ‘retail services’ for the purposes of the RLA’.

Retail premises are not limited to premises from which a tenant supplies goods or services to ‘non-commercial users’. As a result, many warehouse and logistic businesses may be considered ‘retail premises’ for the purposes of the RLA. That said, it must be noted that there are other exemptions to the RLA – such as the monetary exemption (where a tenant’s monetary obligations exceed $1 million in the first year) that are likely to exclude the RLA from many such leases).

Careful analysis must be taken prior to entering into a lease as to whether the RLA applies to the tenancy. Landlords should review their existing lease agreements to avoid an existing tenant attempting to claw back certain payments (such as land tax payments or repair and maintenance payments).

Tenants should consider whether there is scope for their leased premises being considered retail premises given the protection and benefits the application of the RLA provides.